2020 (10) TMI 734 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - unattested Pledge Agreement - the same is being given a new nomenclature as agreement of pledge and guarantee - pre-existing dispute or not - HELD THAT - Each and every clause points to the clear cut intention of the parties who had entered into a Pledge Agreement thereby pledging the shares of the Corporate Debtor and other Pledgers. None of the clauses of the agreement except clause 5.1(g) referred to above and clause 6.2 (b) referred to above have been referred to by the Financial Creditor. The agreement runs into 20 pages and under different heads it beautifully describes the intention of the parties, assigning the role of the Pledger and the pledged shares. For understanding and interpreting this agreement one would have to go into and understand the circumstances which led to the execution of this agreement. Since the loan agreement between the Borrower and the Financial Creditor had also been entered into on the same date i.e. 27.02.2015 which required security package for the said loan to be submitted by the Borrower to the Financial Creditor. This agreement can be referred to as a hybrid agreement. Though it is in fact an agreement of pledge but, for the convenience of the Financial Creditor the same is repeatedly being referred to by the Financial Creditor in its pleadings as Agreement of Pledge and Guarantee without there being any Guarantee explicitly or implicitly. This agreement cannot be interpreted as per the convenience of the Financial Creditor. The role of the Pledgers has been clearly specified from the very beginning and it was very much clear to all the parties including the Borrowers and the Financial Creditors. The Minutes of the Board Meeting submitted to the Financial Creditor by the Borrower specifically in clause 5 mentioned that the Corporate Debtor, and another Pledger shall pledge the number of shares mentioned against their respective names and that Mr. Manoj Kumar Agarwal shall execute Letter of Guarantee received from the Financial Creditor in this connection in favour of the Financial Creditor to secure the dues of the Company. If there had been any intention to include the Pledger Corporate Debtor herein as a Guarantor, a similar guarantee agreement would have been executed from the Corporate Debtor as well. The present application under Section 7 seeking initiation of Corporate Insolvency Resolution Process against the Corporate Debtor, which is only a Pledger of shares, and has not availed any financial benefit from the Financial Creditor and has never signed any document intending to be a Guarantor, cannot be allowed to be proceeded against under Section 7 of the Code - Admission of this petition and initiation of CIRP against the Corporate Debtor shall be the harshest action if allowed to be taken in the foregoing facts and circumstances. The application of the Financial Creditor does not inspire confidence and has failed to convince us as regards fixing any liability on this Corporate Debtor as regards the outstanding dues of the Financial Creditor. Nothing is found due and payable by the corporate debtor to the financial creditor - Petition dismissed.

Summary

Issues Involved:
1. Whether the Corporate Debtor is liable as a guarantor under the "Unattested Pledge Agreement."
2. Whether the application under Section 7 of the Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016, against the Corporate Debtor is maintainable.

Detailed Analysis:

Issue 1: Liability of the Corporate Debtor as a Guarantor

The Financial Creditor asserted that the "Unattested Pledge Agreement" dated 27th February 2015, should be interpreted as a "Pledge Cum Guarantee Agreement." The Financial Creditor based this claim on clauses 5.1(g) and 6.2(b) of the agreement, which they argued implied joint and several liability of the Pledgors, including the Corporate Debtor, for the Borrower’s dues.

The Corporate Debtor countered this by arguing that the agreement was solely for the pledge of shares and did not constitute a guarantee. They emphasized that the title of the document was "Unattested Pledge Agreement," and there was no explicit mention of a guarantee by the Corporate Debtor. The Corporate Debtor also referred to the Loan Agreement and the Board Resolutions, which clearly indicated that the only personal guarantee was provided by Mr. Manoj Kumar Agarwal, not the Corporate Debtor.

The Tribunal found that the agreement was indeed an "Unattested Pledge Agreement" and not a "Pledge Cum Guarantee Agreement." The Tribunal noted that the agreement’s title and the clauses within it did not explicitly or implicitly create a guarantee by the Corporate Debtor. The Tribunal emphasized the importance of the context and the parties' intentions, as reflected in the Loan Agreement and the Board Resolutions, which did not include the Corporate Debtor as a guarantor.

Issue 2: Maintainability of the Application under Section 7

The Financial Creditor sought to initiate Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor under Section 7 of the Insolvency & Bankruptcy Code, 2016, claiming that the Corporate Debtor was liable for the Borrower’s dues due to the alleged guarantee.

The Corporate Debtor argued that there was no debt owed by them to the Financial Creditor, as they were merely a pledger of shares and not a guarantor. They highlighted that the shares pledged had already been invoked and were being sold by the Financial Creditor, and thus, no further liability could be attributed to them.

The Tribunal agreed with the Corporate Debtor, concluding that the "Unattested Pledge Agreement" did not create any guarantee obligation for the Corporate Debtor. Consequently, the Corporate Debtor could not be considered a "Corporate Debtor" under the Insolvency & Bankruptcy Code, as there was no financial debt owed to the Financial Creditor. The Tribunal emphasized that initiating CIRP against the Corporate Debtor, who had not availed any financial benefit and had not signed any guarantee document, would be unjust and harsh.

Conclusion:

The Tribunal dismissed the application under Section 7, stating that the Financial Creditor failed to establish any liability of the Corporate Debtor for the outstanding dues. The Tribunal found that the Corporate Debtor was merely a pledger of shares and not a guarantor, and therefore, no debt was due and payable by the Corporate Debtor to the Financial Creditor. The petition was dismissed with no order as to costs.